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The New Zealand hotel sector's biggest challenge is falling low-season room rates and occupancies, not a shortage of hotel rooms, says an expert.

Consultant Terry Ngan says hotel occupancy was at 90 per cent in February for Auckland, but expects that to drop to 70 per cent by July. He also predicts the average room rate to drop by 38 per cent and gross operating profit before ownership costs to fall by 60 per cent.

"This highlights the biggest challenge facing hotel operators and investors -- seasonality during the year and in weekday or weekend," Ngan said. "What is urgently needed is a substantial increase in visitor arrivals from overseas and domestically to boost hotel demand in the winter months of June to August and the shoulder months of April-May and September-October."

Room rates had only risen to current levels during the past three years.

Tourism New Zealand, the state organisation responsible for marketing New Zealand to overseas tourists, is focussing its spending away from the peak season and targeting the low seasons.

A big hotel building boom was on.

"The hotel development cycle is well into an upswing in New Zealand with five smaller hotels -- each with under 80 rooms, totalling 280 rooms -- under construction, including strata title Ramada and Wyndham hotels in Auckland, Rotorua Queenstown and Christchurch," Ngan said.

"Stage two of the upswing is now in progress with nine new hotels totalling 1200 rooms under construction in Auckland, Wellington, Christchurch and Queenstown totalling 1200 rooms. Of course there will never be enough hotel rooms in the high season to satisfy demand and there should not be as higher occupancies and room rates are required to provide satisfactory [returns] for hotel investors."

It was important that several new larger hotels did not open at the same time leading to a "boom and bust scenario", as had happened in the past, Ngan said.

"The best solution for existing and new investors is for the tourist industry to significantly increase hotel occupancy in the shoulder and low seasons," he said. "And owners of aging existing hotels must upgrade their product to justify their higher room rates."

Auckland has three new hotels with 641 new rooms under construction. Next year, the CP Group-owned Sofitel So will open.

"In 2017, 220 rooms will re-open after significant refurbishments completed at Mercure Auckland, Rendezvous Auckland and Copthorne Harbourside. This followed 170 new rooms opening at the Ramada and Adina hotels opening in late 2015-early 2016," Ngan said.

In 2019, the new 200-room Park Hyatt on the waterfront by Fu Wah will open. Also, the new 311-room SkyCity hotel, as part of the $700 million NZ International Convention Centre, will open.